Research from leading independent investment consultant Redington has found that, on average, asset managers engage with less than 20 per cent of their portfolio on climate change.
In their latest research, Redington consulted with 112 asset managers from across the globe, covering 220 strategies and an aggregated USD10 trillion under management, on how they were engaging with their investments on a number of sustainability topics.
Results show that, on average, asset managers engage with less than 20 per cent of their portfolio on climate change, 15 per cent on net zero and 11 per cent on Scope 3 emissions.
This is despite 63 per cent of respondents stating they have made net-zero, or similar, climate commitment.
Anastasia Guha, Global Head of Sustainable Investment, at Redington, says: “It’s widely recognised that climate-related risks not only affect our planet, but the economy too – a sentiment seemingly echoed by asset managers through the various public net-zero commitments made over the past year or so.
“Yet in order to really make progress, our industry must continue to close the gap between the words we use and what we deliver in practice. These actual levels of engagement imply that some of our words could be akin to greenwashing, which doesn’t help anyone.”
Redington also found engagement on both supply chain human rights and pollution and biodiversity to be low, at 9 per cent and 8 per cent respectively. Guha said given the materiality of these issues, clients and beneficiary interests would be better served by asset managers directing more attention towards these.
In regards to broader integration of climate-related risks and opportunities, Redington’s survey found that only 80 per cent of surveyed strategies incorporate the measurement and assessment of these factors into their investment processes.
The research also raised concerns around the extent to which this integration was translated into concrete investment decisions, as well as around an inability for asset managers to differentiate between the various components of ESG.
For example, only 64 per cent of asset managers could provide an example of where an investment decision had been affected by a climate view in the last six months.
Moreover, when asked for specific examples where investments had been sold based on climate change views, several asset managers referred to decisions based on social factors, rather than climate.
Redington also questioned asset managers on the ways through which they were considering climate change in their investment decision-making. Of the 80 per cent who stated they did incorporate climate-related risks and opportunities into their investment decision making; 48 per cent used climate change screens; 74 per cent used climate risk assessment tools; and 72 per cent employed one or more emissions-based metrics.
Guha says that, given the complexity of climate change, a robust, holistic assessment of these factors is more effective than a simple screening technique, and Redington would therefore like to see even more asset managers performing climate risk assessments and monitoring climate metrics.
Through in-depth due diligence of an investment team, its processes and philosophy, Redington’s manager research team is looking to build an informed opinion on the quality of an asset manager’s climate change risk integration to identify those asset managers that are best placed to offer transition-ready portfolios.
Guha says: “As an adviser to over GBP600 billion of client assets, allocated across 150-plus asset managers, we recognise that we have a responsibility to use our influence as a force for good, to create positive change within the savings and investment industry.
“This is why earlier this year we published our 7-point climate action plan, which includes aligning our default client advice with achieving the goals of the Paris Agreement, reaching net zero by 2050 at the latest.
“Assessing asset managers’ and specific investment teams’ climate and ESG capabilities is a key input into our asset manager research process as we believe it’s fundamental to having a robust strategy that’s aligned with our clients’ climate objectives.
“Only by working together as an industry will we be able to tackle the monumental task that climate change poses and help drive the global transition to net zero.”